Stocks Erase Post-Fed Gains

Blue Chips Fall 185.46 Points in Biggest Slide Since Aug. 15

BlackBerry expects to report a hefty operating loss of nearly $1 billion in its fiscal second quarter due to an inventory buildup of unsold smartphones, and will lay off 4,500 employees. Steven Russolillo reports on the News Hub. Photo: AP.

By

Matt Jarzemsky

Updated Sept. 20, 2013 4:50 p.m. ET

Stocks tumbled Friday, reversing gains that had followed the Federal Reserve's move to maintain its monetary stimulus earlier in the week.

The Dow Jones Industrial Average fell 185.46 points, or 1.2%, to 15451.09, its biggest daily slide since Aug. 15.

The S&P 500-stock index dropped 12.43 points, or 0.7%, to 1709.91, retreating from Wednesday's record of 1725.52. The Nasdaq Composite Index dropped 14.66 points, or 0.4%, to 3774.73.

In the Markets

"It's a bit of a buyers' strike with very targeted selling," said Joe Spinelli, head of North America cash equity trading at Deutsche Bank. "The areas that I'm seeing selling were the areas that were the best bid when the Fed announced that they weren't going to taper."

ENLARGE

A surprise move Wednesday by the U.S. central bank to leave its stimulus program fully intact had sparked surges in stock and bond prices. Since late May, investors have been preparing for the eventual scaling back of monetary-policy measures that have buoyed the price of bonds as well as stocks. But the midweek jolt faded quickly.

Meanwhile, stock-market bears point to sluggish economic growth and a harder search for undervalued companies following the S&P 500's 20% gain in 2013. Meanwhile, a potentially nasty U.S. budget debate is just starting, and the Fed's playbook for weaning the market off its easy monetary policy remains uncertain.

ENLARGE

Traders on New York Stock Exchange floor Friday. Blue chips managed to eke out a 0.5% gain for the week.
Reuters

High-dividend-paying stocks such as real-estate investment trusts and utilities had rallied Wednesday on speculation that continued central-bank stimulus could forestall higher interest rates, making their payouts attractive compared with bond yields that remain below historic averages. That reversed Friday, as the MSCI U.S. REIT index slid 1.7% and utilities in the S&P 500 fell 1.5%.

Friday saw heavy volume as the stock market closed, in part due to what traders refer to as "quadruple witching," when index futures, index options, individual stock options and individual stock futures all expire on the same day. The periodic rebalancing of a handful of major stock indexes also jolted volume, traders said.

The yield on the 10-year Treasury note inched down to 2.735%. The yield was down sharply from 2.896% a week ago.

Watching the Fed

Has Wall Street lost trust in the Federal Reserve following the Fed's unexpected move to maintain its $85 billion per year bond-buying program? WSJ's Jon Hilsenrath joins the News Hub to discuss. Photo: AP

European markets pulled back slightly as investors looked ahead to the German elections over the weekend. The Stoxx Europe 600 fell 0.3%%, after closing at a more than five-year high on Thursday.

Angela Merkel is expected to win a third term as chancellor, but some opinion polls suggest her center-right coalition holds only a slight majority, putting some doubt in the outcome of Sunday's national election. Germany's DAX 30 index eased 0.2%.

Asian markets paused after Thursday's Fed-induced rally. Japan's Nikkei Stock Average slipped 0.2% but closed up 2.3% on the week. Meanwhile, India's S&P BSE Sensex index slid 1.9% after the Reserve Bank of India surprised investors by raising its key lending rate by a quarter percentage point to 7.5%.

In corporate news, BlackBerryBBRY-2.34% tumbled after the smartphone maker warned it expects to report sharply lower earnings than Wall Street expected. It plans to cut 4,500 jobs to help cut costs by 50% by 2015.

AK SteelAKS-5.75% slumped after the steelmaker projected late Thursday a third-quarter loss that was wider than analysts' forecasts amid a decline in shipments and prices.

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